World Bank warns of increasing exposure of banking sector to sovereign borrowing
A
World Bank report has cautioned about growing exposure of Pakistan’s banking
sector to the government.
The
report namely Pakistan Development Update April 2023, states that credit
extended by the banking sector to the sovereign has gone up by 444 percent over
the June 2012-June 2022 period, while credit to the private sector has only
increased by 170 percent.
Resultantly,
credit to the sovereign now accounts for 68.3 percent of all the credit
extended by the banking sector as of December 2022, up from 43.0 percent in
June 2010.
This
has led to a decline in credit to the private sector, with credit to private
sector (% of GDP) dropping from 29 percent in 2008 to 17 percent in 2020.
The
report warns that the banking sector’s growing exposure to the government has
resulted in a lack of incentives for designing innovative financial products to
underserved sectors.
The
report also notes that the sovereign’s dependence on the domestic banking
sector has increased due to a bar on the monetization of debt, declining access
to international capital markets, and growing expenditure needs.
Source:
pkrevenue.com